abinet Committee on Economic Affairs (CCEA)18-October, 2014 20:29 IST
| Revision of Domestic Gas Prices | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The
Cabinet Committee of Economic Affairs, chaired by the Prime Minister Shri
Narendra Modi, today approved the new domestic gas pricing policy.
The
salient features of the new Gas Pricing Policy are follows:
(i) As
per the formulation approved by the CCEA today, upward revision in gas prices
will be approximately 75% less as compared to the price arrived at using
Rangarajan formula.
(ii) Approximately
80% of the additional revenue due to revision in gas price will go to the
Government companies.
(iii) Government
will get additional revenue of approximately Rs. 3800 crore per annum on
account of higher royalty, higher profit petroleum and higher taxes.
After
the new Government took over, a decision was taken to defer the Domestic
Natural Gas Pricing Guidelines, 2014 and to get the matter re-examined. For
this purpose, a Committee which, included, Secretaries of the Ministries/Departments
of Power, Expenditure and Fertilizer as Members with Additional Secretary,
Ministry of Petroleum and Natural Gas as Member Secretary was appointed.
The
Committee has recommended an approach for gas price determination, which is
based on the modification to the Rangarajan formula by:
(i)
Removal of both the Japanese and Indian LNG
import components in the formula.
(ii)
Consideration of Alberta Gas Reference price in
place of Henry Hub Prices for Canadian consumption.
(iii)
Consideration of Russian actual price in place
of National Balancing Point price for the Russian consumption considered under
Former Soviet Union (FSU) countries.
(iv)
Consideration of appropriate deductions on
account of transportation and treatment charges, etc., for different hub
prices.
(v)
The options of bi-annual and annual price
revision instead of quarterly revision may be considered.
The
Committee also recommended applicability of the modified approach prospectively
and to apply it uniformly to all sectors of the economy, along with prevailing
gas allocation policy of the Government. The Committee was of the view that
the National Oil Companies (NOCs) may also get the same price as determined
under the proposed dispensation, including the gas from the nomination fields.
In addition, the Committee also drew attention to the fact that although in
India gas is historically being priced on National Calorific Value (NCV), the
input prices being used in the Rangarajan formula are based on Gross Calorific
Value (GCV).
The
following has been approved by the CCEA:-
(i)
The gas price is proposed to be determined as
per the formula given below
P
= VHH PHH + VAC PAC + VNBP PNBP + VR PR
VHH
+ VAC + VNBP + VR
Where
(a)
VHH = Total annual volume of natural gas
consumed in USA & Mexico.
(b)
VAC = Total annual volume of natural gas
consumed in Canada.
(c)
VNBP = Total annual volume of natural gas
consumed in EU and FSU, excluding Russia.
(d)
VR = Total annual volume of natural gas consumed
in Russia.
(e)
PHH and PNBP are the annual average of daily
prices at Henry Hub (HH) and National Balancing Point (NBP) less the
transportation and treatment charges.
(f)
PAC and PR are the annual average of monthly
prices at Alberta Hub and Russia respectively less the transportation and
treatment charges.
(ii)
The periodicity of price determination/notification
shall be half yearly. The price and volume data used for calculation of
applicable price shall be the trailing four quarter data with one quarter lag.
The first price would be determined on the basis of price prevailing between
1st July, 2013 and 30th June, 2014. This price would come into effect from 1st
November, 2014 and would be valid till 31st March, 2015. Thereafter, it would
be revised for the period 1st April, 2015 to 30th September, 2015 on the basis
of prices prevalent between 1st January, 2014 and 31st December, 2014, i.e.,
with the lag of a quarter and so on. The prices would be announced 15 days in
advance of the half year, for which it is applicable.
(iii)
The price so notified would be applied
prospectively with effect from 1st November, 2014 and would be on GCV basis as
input prices in the formula are on GCV basis.
(iv)
The revised gas price, so determined would be
applicable to all gas produced from nomination fields given to ONGC and OIL
India, NELP blocks, such Pre-NELP blocks where PSC provides for Government
approval of gas prices and CBM blocks. The following are the exceptions to
which this policy would not apply:-
(a)
Small and isolated fields in nomination blocks,
given their peculiar conditions, guidelines for pricing of gas were issued in
2013 would continue to apply.
(b)
Where prices have been fixed contractually for a
certain period of time, till the end of such period.
(c)
Where the PSC provides a specific formula for
natural gas price indexation/fixation.
(d)
Such Pre-NELP blocks where Government approval
has not been provided under the Production Sharing Contract (PSC).
(v)
The matter relating to cost recovery on account
of shortfall in envisaged production from D1, D3 discoveries of Block
KG-DWN-98-3 is under arbitration. Hence the operator would be paid the earlier
price of US $ 4.2/MMBTU till the shortfall quantity of gas is made good. It is
proposed that the difference between the revised price and the present price
(US $ 4.2 per million BTU) would be credited to the gas pool account maintained
by GAIL and whether the amount so collected is payable or not, to the
contractors of this Block, would be dependent on the outcome of the award of
pending arbitration and any attendant legal proceedings.
(vi)
For all discoveries after this decision, in Ultra
Deep Water Areas, Deep Water Areas and High Pressure-High Temperature areas, a
premium would be given on the gas price to be determined as per the prescribed
procedure.
(vii)
In the NER region, the 40% subsidy would
continue to be available for gas supplied by ONGC/OIL. However, as private
operators are also likely to start production of gas in NER, and would be
operating in the same market, this subsidy should also be available to them to
incentivize exploration and production.
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AK/SH/SK
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